Euro-area business activity rose at the fastest rate in nine months in February — raising the likelihood that the bloc can avoid a downturn this quarter.
(Bloomberg) — Euro-area business activity rose at the fastest rate in nine months in February — raising the likelihood that the bloc can avoid a downturn this quarter.
The better-than-expected performance was driven by services, which saw the strongest growth since June in surveys of purchasing managers by S&P Global. Manufacturing output also improved as supply-chain bottlenecks eased further.
Activity rose across the region, with both France and Germany returning to expansion after likely pullbacks in January.
“Growth has been buoyed by rising confidence as recession fears fade and inflation shows signs of peaking,” S&P Global economist Chris Williamson said Tuesday in a statement. “Manufacturing has also benefitted from a major improvement in supplier performance.”
The data are the latest to underscore the euro area’s resilience to the energy shock stoked by Russia’s invasion of Ukraine. Confidence has improved as shortages of natural gas became increasingly unlikely this winter and the worst inflation in decades began to retreat from its double-digit peak.
While price pressures moderated further in February, they persisted in services, according to S&P Global. That was partly linked to higher wage growth – something that may concern the European Central Bank as it studies such underlying trends to determine the appropriate path for interest rates.
The data will probably strengthen officials’ resolve to continue raising borrowing costs to what they call “restrictive” levels. The ECB lifted rates by a half-point this month and all but promised an identical step in March.
Governing Council member Olli Rehn said in comments released Monday that further hikes beyond that are likely, and that the peak will probably be reached in the summer.
“The combination of accelerating growth and stubbornly elevated price pressures will naturally encourage a bias toward further policy tightening in the months ahead,” Williamson said.
The numbers follow a slight advance in Australia’s PMI and an unchanged growth reading in Japan. UK and US numbers later Tuesday are expected to show improvements, but still indicate contractions.
–With assistance from Mark Evans and Joel Rinneby.
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